Whoa! What Just Happened to My Stock?
Hope for greater financial stability in Europe continues to drive U.S. markets higher, but just because your stock strapped on a rocket pack and went even higher, resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.
Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.
CAPS Rating(out of 5)
|Harmon International (NYS: HAR)||***||20.6%|
|Altera (NAS: ALTR)||****||12.2%|
|National Bank of Greece (NYS: NBG)||***||10.9%|
With the Dow Jones Industrial Average (NYSE: ^DJI) soaring 267 points on Friday, or 2.3%, stocks that went appreciably higher are pretty big deals.
Sounds good to me
Let's not take anything away from the results of audiophile Harmon International, the owner of the Harmon Kardon and JBL brands. It posted spectacular fiscal first quarter earnings, and the market responded in kind. Revenues jumped 26% to $1.05 billion and profits nearly doubled to $0.69 a share when analysts were looking for just $0.51 a share on $961 million is sales, so management was right to tout its "new growth phase."
It also helped that the electronics maker moved a lot of its operations to low-cost countries like China, Mexico, and Hungary, where it is doubling its manufacturing capacity. Gaining a broader foothold in other BRIC countries like Brazil and India is helping it expand its base, but while it has reported top- and bottom-line quarterly growth for the past two years running, I'm not sure investors can count on continued outsized performance like it had in its most recent quarter.
Management admits there was some pent-up demand for audio equipment following the earthquake and tsunami in Japan earlier this year, which affected competitors, causing customers to switch to Harmon brands. Sony (NYS: SNE) and Panasonic both reported results last quarter that were shaken as a result of the disaster, with Sony's sales down 5% and Panasonic's off 11% last quarter.
Highly rated CAPS All-Star member naughtyguy still thinks the sound system specialist should be considered on its own merits: "new marketing strategy should pay off and stock price has come down to good buying price. IMHO."
Add Harmon to your watchlist, and let us know on the Harmon International CAPS page if you think investors will continue to tune in to the company.
Programmable-chip maker Altera was also pushed higher on the back of its third-quarter earnings report despite coming up short in the expectations department. While sales dropped 1% to $522 million from the year-ago period and profits of $185 million, or $0.57 per share, were below analyst forecasts, they were encouraged by its market position in the 28 nanometer wafer market.
Yet here's another whose big share gains might be fleeting. Rival Xilinx also posted quarterly earnings, and though profits were off sharply (down 26% year over year), they were well ahead of analyst expectations and sales were up 10%. Xilink is showing strong performance in the 40- and 45-nanometer wafer market, but also rode herd on the 28-nm space. With margins declining across the board, however, it looks like a tough pricing environment for all players here.
Still, analysts like where Altera is heading, and several shops upgraded its prospects with buy ratings. Indeed, all 15 analysts tracking the chipmaker on CAPS think it will beat the indexes something 96% of the 116 All-Stars weighing in on Altera agree with.
Tell us in the comments section below or on the Altera CAPS page if you think it can continue fending off Xilinx's advances, and add it to your watchlist to watch its progress.
Don't bank on it
Talk about fleeting gains. National Bank of Greece has to be holding on by the slimmest of threads as the country tries to negotiate the minefield of a complete collapse. Greek union workers want no part of the austerity measures agreed upon by the EU to bail the country out of its financial morass and are striking and rioting in response, setting Athens ablaze.
The international bankers threw Greece a lifeline in the form of an 8 billion euro loan to keep it from defaulting on its commitments next month, but even they don't think the outlook is rosy enough that it will be able to keep paying its bills. Debt levels are so out of control in the country that the financiers have set the dubious goal of having Greece reduce its debt to GDP levels below 110% by 2020! Hardly seems like austerity.
If Greece collapses, the domino effect will likely be dramatic, but global bankers are scrambling to prevent that from occurring. Most of the financial institutions with the greatest exposure to Greek sovereign debt are in Greece itself, though a number of European banks like Commerz and BPI have sizeable positions in terms of their equity, though in relation to their total assets it's quite small. U.S. banks have a more manageable risk, with the total topping $41 billion between direct and indirect exposure.
For example, France's Dexia had to be bailed out (a second time) because of Greece's problems, but both Goldman Sachs (NYS: GS) and Morgan Stanley (NYS: MS) were two of its biggest trading partners. If everyone else is reeling, can National Bank of Greece be far behind?
As CAPS member divinezone puts it: "Too much uncertainty over the Greek economy and the Eurozone in general...even if it is a good company on its own accord the broader systemic problems will continue to pound its stock price."
Add the bank to the Fool's free portfolio tracker if you'd like to watch it go through its death throes.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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